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Reserve Bank interest rates: RBA board meets to decide on borrowing costs – live
Reserve Bank interest rates: RBA cuts rates to historic low of 1.25% – live
(32 minutes later)
ANZ is first out of the blocks and into Josh Frydenberg’s good books by reducing its headline rate by 0.18% (18 basis points as they say in the jargon where 1% = 100bps).
Still keep 0.7% for itself though.
The governor is speaking in Sydney tonight at 7.30pm and might provide some more insights into how he sees the cut impacting the economy.
Until then, plenty of other people have an opinion:
I am so pleased to be the only person from the middle of last year to call interest rate cuts when close to 50bps of hikes were priced in & the RBA was telling everyone the next move was up. Others slowly joined the bandwagon with the last ones on the RBA itself!
The #RBA narrative is that the economy is not too bad but it can do more to push unemployment lower and inflation higher - seems the glass can be half-full even when you're cutting rates...
In April 2017 I placed a massive $10 bet on the next RBA move being a cut at their juicy odds of $2.50. Played the long game and now I'm rich.
The Aussie dollar has risen ever sop slightly to US69.76. That shows the 0.25% cut – an all-time low for rates here – was fully priced in and that some even thought the RBA could cut by 0.5%. It didn’t, so the Aussie actually rises.
The #RBA has cut interest rates to 1.25%, as was broadly tipped. $AUD has rallied slightly, while the #ASX has too. 2Y AGB yields climb, indicative of a market unwinding some future rate-cut bets.
The ASX200 has risen a little too. It’s up 14 points or 0.2% to 6334. The stock market just loves cheap money.
Lowe’s tour de horizon continues with detailed comments about unemployment, inflation and the housing market. On the former he pinpoints April’s rise to 5.2% as a key moment but says wages are still expected to see some improvement. Likewise with inflation, although it’s way below his target at the minute it’s going to rise to above 2% next year.
Employment growth has been strong over the past year, labour force participation has been increasing, the vacancy rate remains high and there are reports of skills shortages in some areas. Despite these developments, there has been little further inroads into the spare capacity in the labour market of late. The unemployment rate had been steady at around 5 per cent for some months, but ticked up to 5.2 per cent in April. The strong employment growth over the past year or so has led to a pick-up in wages growth in the private sector, although overall wages growth remains low. A further gradual lift in wages growth is expected and this would be a welcome development. Taken together, these labour market outcomes suggest that the Australian economy can sustain a lower rate of unemployment.
The recent inflation outcomes have been lower than expected and suggest subdued inflationary pressures across much of the economy. Inflation is still however anticipated to pick up, and will be boosted in the June quarter by increases in petrol prices. The central scenario remains for underlying inflation to be 1¾ per cent this year, 2 per cent in 2020 and a little higher after that.
The adjustment in established housing markets is continuing, after the earlier large run-up in prices in some cities. Conditions remain soft, although in some markets the rate of price decline has slowed and auction clearance rates have increased. Growth in housing credit has also stabilised recently. Credit conditions have been tightened and the demand for credit by investors has been subdued for some time. Mortgage rates remain low and there is strong competition for borrowers of high credit quality.
The governor sticks to his guns about the Australian economy, predicting that it will grow by 2.75% this year and next. Big test for those numbers tomorrow in Q1 GDP data. He says investment in roads and rail is helping but the weaker outlook for domestic demand is not helping.
The central scenario remains for the Australian economy to grow by around 2¾ per cent in 2019 and 2020. This outlook is supported by increased investment in infrastructure and a pick-up in activity in the resources sector, partly in response to an increase in the prices of Australia’s exports. The main domestic uncertainty continues to be the outlook for household consumption, which is being affected by a protracted period of low income growth and declining housing prices. Some pick-up in growth in household disposable income is expected and this should support consumption.
In his statement, governor Philip Lowe homes in on his two main concerns – jobs and inflation– in his up-summing:
Today’s decision to lower the cash rate will help make further inroads into the spare capacity in the economy. It will assist with faster progress in reducing unemployment and achieve more assured progress towards the inflation target. The Board will continue to monitor developments in the labour market closely and adjust monetary policy to support sustainable growth in the economy and the achievement of the inflation target over time.
Read the statement in full here
The RBA has cut rates to 1.25%
It’s coming ...
The US dollar has continued to slip amid all that talk about a possible Fed rate cut. With the Aussie dollar downside all-but totally priced in ahead of the RBA move, that could even mean a mini rally in the Aussie today.
The US dollar has continued to slip amid all that talk about a possible Fed rate cut. With the Aussie dollar downside all-but totally priced in ahead of the RBA move, that could even mean a mini rally in the Aussie today.
Greg McKenna, strategist at McKenna Macro, told Reuters earlier that a Fed rate cut could be a circuit-breaker for the current gloomy market mood.
Greg McKenna, strategist at McKenna Macro, told Reuters earlier that a Fed rate cut could be a circuit-breaker for the current gloomy market mood.
Unless there’s a circuit breaker, and it may come in terms of a Fed cut, or it may come in terms of more Chinese stimulus or the European Central Bank later this week ... equity prices and bond rates are going to continue to go lower.
Unless there’s a circuit breaker, and it may come in terms of a Fed cut, or it may come in terms of more Chinese stimulus or the European Central Bank later this week ... equity prices and bond rates are going to continue to go lower.
The folks at the money-saving site mozo.com.au have attempted an analysis of how much the big four banks have saved by not passing on the last rate cut in full. Here is Tom Godfrey from Mozo:
The folks at the money-saving site mozo.com.au have attempted an analysis of how much the big four banks have saved by not passing on the last rate cut in full. Here is Tom Godfrey from Mozo:
We have calculated the ‘big four’ have pocketed approximately $3.6bn in revenue by not passing on the August 2016 cut in full. Also, by delaying the date at which their partial cuts in August 2016 took effect, they pulled in $7.1m per day - $113m in total.
We have calculated the ‘big four’ have pocketed approximately $3.6bn in revenue by not passing on the August 2016 cut in full. Also, by delaying the date at which their partial cuts in August 2016 took effect, they pulled in $7.1m per day - $113m in total.
For more detail on what a cut might mean for indebted homeowners, this is a useful thing:
Here's what a rate cut at tomorrow's RBA meeting would mean for the average mortgage holder (@RateCity research).Tune into @SkyNewsAust all day tomorrow for expert commentary pic.twitter.com/4exjPujrhV
While economists and traders will pore over the fineprint of the RBA’s statement at 2.30, the impact of a rate cut on other Australians will obviosuly depend on whether you are a mortgage holder or a saver.
Josh Frydenberg showed this morning that the votes are with the mortgage holders as he called on the banks to pass on any cut without delay. Borrowers with an average home loan of $400,000 would save about $58 on their monthly repayments if the cut was fully passed on.
“I expect all banks to pass on the benefits of sustained reductions in funding costs,” the treasurer said, adding that the royal commission should remind the banks that they are on notice. “The royal commission highlighted how the culture within financial institutions needed to improve ... and how the conduct had fallen below public expectations.”
Lowe said in his speech (see post below) that cutting rates would also help to lift inflation.
This is a crucial point. The bank is mandated to keep inflation between 2-3%, which is generally regarded as the optimum, Goldilocks level – not too high, not too low. It has failed to reach this target for more than three years but has held back from applying the obvious remedy of cutting interest rates in order to stimulate the economy and boost prices.
Its reluctance was due to concern about the impact of lower rates on already-soaring house prices. Declining property values have neutralised this issue but another key measure – unemployment – has remained low enough for the bank to argue that no stimulus has been needed. A recent rise in joblessness, however, could finally be the trigger for rates to come down today.
So @abc730 interviews someone on monetary policy and there was no mention of inflation or the labour market - the two key objectives of the RBA. I am not making this up
Quite why inflation has remained so stubbornly low despite a decade of cheap money in the wake of the global financial crisis has puzzled central bankers all over the western world. The conundrum is such that the US Federal Reserve is rethinking how it tackles inflation and whether it should even be that focused on the metric that has dominated conventional monetary policy since the 1970s.
Quite a lot of observers now think the Fed will join the rate-cutting set soon. We’re going to party like it’s 2008 all over again.
38% chance of a cut from the Fed in the June...its become a thing
US May manu ISM index -0.7pts to 52.1. Well down from too strong to believe 2018 levels, above 2012 & 2015-16 slowdown lows & still okayish...but momentum is poor not helped by trade wars.April construction flat but Mar revised up.Increasingly likely #Fed will cut later this yr pic.twitter.com/mS9Zz4gUha
Bank governor Philip Lowe last month gave a very strong steer that the board would cut this time. In a speech he said that unemployment would not go down with cutting rates and said that “we will consider the case for lower interest rates”.
So far pretty clear cut.
But an article in the Australian Financial Review yesterday set out three possible reasons why the bank might sit tight again today. If you didn’t see the piece, allow me to summarise for you. The first reason is that the bank might think that if it cuts rates it will have no ammunition left to stimulate the economy if it tipsm into recession, which some think is possible later this year. Number two is that unemployment is still not rising high enough to justify a cut; the bank has consistently said that the jobs market has to weaken more in order to justify cuts. The final reason is that the RBA might think that with the Coalition back in power, its tax cuts will provide stimulus enough for the economy.
Stock markets have been tumbling again across the rest of Asia Pacific as the US-China trade/tech/geopilitical standoff continues to rumble on without much propsect of a resolution.
The Nikkei is down 0.6%, Hang Seng is off 0.65%, Shanghai -1% and the Kospi in Seoul is just into the red by a couple of points.
It followed a volatile session on Wall Street which saw the stocks fall on weak factory data. But the Nasdaq dropped by 1.61% to 7,333.02, taking it more than 10% lower than its May 3 closing record, amid concerns that US regulators could target Alphabet, Facebook and Amazon for antitrust violations.
Read the full report hewre:
US tech stocks slide as Google, Facebook and Apple fear antitrust investigations
While the Aussie dollar dipped slightly after those retail figures, the ASX200 has remained flat as investors sit on their hands ahead of the decision at 2.30. The index is up 1.7 points, o.03%, at 6,322.
Writing yesterday before the retail figures, Craig James, chief economist at Commsec Research, said there had been a lot to like about recent economic data. Company profits are at a record high, he says ,sales are growing near the fastest pace in a decade in 12 out of 15 industry sectors and wages are growing at a faster pace than the decade average.
With inflation low, he says the figures mean the RBA can “go for growth” by cutting rates and trying to get more people into work.
Worth highlighting a chart from Greg Jericho’s aforementioned article showing that profits have been rising but wages haven’t kept up:
The chances of a cut looked even more likely after this morning’s weak retail sales figures.
The release from the Australian Bureau of Statistics said that retail sales fell 0.1% in April, compared with growth of 0.2% predicted by economists.
Spending on household goods fell by 0.9%, leading economists to make a direct read across to impact from the falling property market. Cafes, restaurant and takeaway food services fell 0.7%; and clothing, footwear and personal accessory retailing dropped by 1.2% for the month. The falls were offset by a 0.2% lift in food retail and a healthy 1.8% rise in department store spending.
April 2019 Retail sales in NSW is a tale of a dying property sector compared to April 2018April 2019 SAFurniture et al: -11% Electronics -3.5%Household goods -0.9%Recreation goods -10.9%Population QE has failed.But Department stores and Pharmaceuticals/cosmetics up up!
Once again, retail sales growth has dipped below 3%. Sector continues to struggle under the weight of low wage growth and falling property prices #ausbiz pic.twitter.com/RghkpYg7E9
The Australian dollar dipped slightly to US69.64c on the news at 11.30am although it has since moved up againto US69.73c.
More or less everyone thinks today will be the day when the cash rate moves into yet more uncharted territory. All four of Australia’s big banks believe that rates will fall today – and probably fall again by the end of the year. The doyen of bank economists, Bill Evans, thinks today will see the first of three rate cuts this year.
JP Morgan goes further and sees the cash rate as low as 0.5% sometime next year.
So its #RBA day & 25bps is locked & loaded. So the better qn is - could it be a one done all done day? Here is the interbank's pricing of -50bps - for a cash rate of 1%. #ausbiz #neversaynever pic.twitter.com/zlUOwKru4t
Westpac’s Matthew Hassan believes a cut is nailed on so focuses on what a reduction in borrowing costs might mean for economic sentiment. He thinks it’s going to be “reasonably positive” and, because it is likely to be the first of several more cuts this year, “the more interesting aspect may be the extent to which a June rate cut and follow up moves in coming months generate a more sustained lift in housing related sentiment”.
Welcome to the live blog on the Reserve Bank of Australia’s board meeting.
It’s widely expected that the board will move the cash rate for the first time since August 2016 with all signs pointing to a 0.25% reduction to 1.25% at 2.30pm today.
Bloomberg says that 36 out of 38 economists polled believe that the RBA will reduce the cash rate from its current 1.5%, itself already a record low.
The chances of a cut have hardened with figure this morning showing that retail sales in Australia fell by 0.1% in April. Forecasts were for the figure to rise 0.2% so that’s what market experts call a big miss on the downside. More analysis of that coming up soon.
We’ll also be looking at whether the banks will pass on a cut to mortgage holders in the event that the RBA does reduce rates. Treasurer Josh Frydenberg said this morning that banks must pass the cut on. More on that too coming up.
This is all part of a big week of economic data for Australia with tomorrow seeing the release of GDP figures for the first three months of the year. For analysis of that and everything else this week you can read this excellent piece by my colleague Greg Jericho:
In a big week for the economy, there is some hope that things might improve | Greg Jericho
And to get a little bit topical (apologies to readers in WA and the NT) ...
It will be a cold day in Queensland before the RBA cuts rates below 1.5%... https://t.co/mfldZCbTrA
